Social commerce: The Meesho way

When life gives you a lockdown, sell groceries. That was the mantra for most e-commerce players last year when the pandemic shuttered the country. Meesho was no different. The social commerce company launched ‘Farmiso’ in March 2020, running the online grocery business much like its other verticals such as fashion and beauty—using its platform to connect small businesses with resellers, mostly homemakers looking to supplement their family income, who in turn find customers amongst their social groups.

The Bengaluru-based company raised $300 million in April, in part to grow ‘Farmiso’ over the next 18 months. That SoftBank-led funding round vaulted Meesho into the unicorn club with a $2.1 billion valuation, three times its value in 2019. This easily makes Meesho the biggest player in India’s nascent social commerce market, whose worth, according to Bain & Co. and Sequoia Capital India, could balloon from $1.5 billion-$2 billion today to nearly $70 billion by 2030. Not bad for a company that pioneered the social commerce trend in India when it was founded six years ago by two Indian Institute of Technology, Delhi, alumni, Vidit Aatrey and Sanjeev Barnwal.

Meesho—short for meri shop (my shop in English)—targets tier 2 and 3 cities, and boasts of more than 17 million resellers, 15 million of whom are women, and over 60,000 suppliers. “I come from a middle-class background and we’ve bought from small businesses all our lives. We wanted to bring them online,” says Aatrey. “In India, there are about half a billion people who use WhatsApp regularly and the number of people who are buying from e-commerce platforms is still roughly about 100 million. This means that 80% of India’s population on smartphones is still not transacting online. The opportunity to bring the next e-commerce buyers online is very large,” he says.

The sheer size of this untapped potential— both buyers and resellers—has spawned a host of new entrants like Dealshare, SimSim, Glowroad, Shop101, and Kiko TV, to name a few. Their target is the first-time online shopper, with resellers creating either text or video content to engage buyers. These platforms have another advantage over traditional e-commerce as SimSim’s co-founder, Amit Bagaria, explains: “We are doing this using a large network of ‘community opinion leaders’ who come from the same communities that our users come from, and sell to end-users through engaging content in vernacular languages.”

Meesho's reselling model is much like assisted shopping, says Saurav Kumar Chachan, senior consultant at RedSeer Management Consulting. “You, as a customer, buy directly from e-commerce sites like Flipkart or Amazon. But in a reseller model, there’s a third entity between the platform and the customer. The reseller will share a product within their network via WhatsApp or Instagram. If anyone wants to place an order, they will place it after adding their margin and Meesho will deliver that product to the customer directly,” says Chachan. This benefits all parties—the supplier saves on marketing and logistics, the reseller earns through their markup on each product, and Meesho gets a commission from the supplier.

Resellers are not Meesho’s only differentiator over behemoths like Amazon and Flipkart, says Chachan. “Their products are low-priced, high-purchase frequency, and mostly unbranded, while a Flipkart may have a mix of too many options. The next wave will come from tier 2 and 3 cities. It will be more of a question for Amazon or Flipkart on how they will win their trust and curate their platform as per their needs,” he says.

Meesho has another secret sauce—creating an easy-to-use platform, just like WhatsApp. “The goal we took internally was that we have to build something as easy as WhatsApp. In fact, the first few versions of our app used to look very similar to WhatsApp’s interface because we wanted to bring them to a more familiar place when they come online. I think that’s what worked for us,” says Aatrey. And work it did. Meesho’s revenue jumped nearly 4x to ₹307 crore in the year ended March 2020 as transactions grew. However, losses also rose 3x to ₹315.4 crore, mainly as logistics and fulfilment costs surged. As economies of scale kick in, the bottom line will look healthier.

Meesho’s success and the market’s potential have also attracted some marquee investors. Like SoftBank, whose investment in Meesho is only its third bet in India’s e-commerce space after Snapdeal and Flipkart. “Vidit and Sanjeev have an evolved understanding of the Indian consumer and created a platform to serve the next 500 million new online shoppers. They are bringing 50 million-plus SMEs online, while empowering women entrepreneurs. The success of Meesho—Facebook India. “Meesho has been successful in providing a model for entrepreneurs and small businesses to accelerate sales beyond metros.

Meesho’s products are essentially in unbranded and long-tail categories such as fashion, beauty, furnishings, and home appliances. A move into groceries was therefore natural, though the circumstances were far from ideal. “We started with grocery because last year many states stopped non-essential e-commerce and we saw an opportunity to pivot there. In the long term, we want to make sure that we’re in all categories where small businesses operate. The next big category is groceries,” says Aatrey.

But the online grocery segment is not easy to crack. Deep-pocketed giants like Amazon, Reliance, Walmart-owned Flipkart, and BigBasket are already eyeing the unorganised retail market. Last year, Facebook invested $5.7 billion in Jio Platforms, the digital services arm of Reliance, which is looking to leverage the social network giant’s reach to expand its JioMart platform. Meanwhile, Flipkart intends to expand its online grocery sales to over 70 cities by this September.

The silver lining for Meesho is these larger players have mainly been targeting the tier 1 markets, while Meesho’s stronghold is in smaller towns and cities. But this differentiation might not stay for too long now that other e-commerce giants are looking to make deeper inroads into the hinterlands. Flipkart, for example, launched its Samarth programme in July 2019 to help under-served communities such as artisans and weavers set up an online business. It claims to have over 500,000 such entrepreneurs on its platform today. Amazon has committed $1 billion over the next five years to digitise small and medium businesses.

Aatrey, though, is confident Meesho will manage the competition. “Amazon and Flipkart have been there for a long time; even before we entered. But even then we’ve been able to grow faster year on year because I think we solve a different kind of problem. There’s a difference between the kinds of customers we serve, the categories and the products are very different,” he says. Meesho, though, will also be at risk when its users become digitally savvy and start ordering on an Amazon or a Flipkart, says Chachan.

What then for Meesho?

“Today, our customers need the trust of buying from someone they know in their community. Most of our audience is buying from small businesses,” says Aatrey. “As some of these needs evolve over the years, we’ll also tailor our product. We’re not attached to a particular format.”

(This story originally appeared in Fortune India's June 2021 issue).